Higher arrears and more repossessions forecast

2008 will see "more arrears and possessions" than last year in the UK property market, the Council of Mortgage Lenders has warned.

The news follows research released earlier today by Nationwide, which finds house prices fell 2.5 per cent in May, and 4.4 per cent year-on-year.

"Our forecast for 2008, although it remains unchanged from what we said last October, is far more arrears and possessions than we saw last year," said CML spokesperson Bernard Clarke.

"Given market circumstances that is not surprising, but we don’t see it as being as bad as some other commentators are predicting."

The CML – along with the majority of commentators – argue the correction in prices will not be as severe as during the previous slump, with low interest rates and unemployment, coupled to high demand, supporting prices.

"The situation is one of a completely different range of experiences; we have lower and more stable borrowing costs then we did in the early 1990s," said Mr Clarke.

"Although we have revised downwards our expectations for house price growth, we are still not likely to see a price correction of the magnitude that we saw in the 1990s and neither is there any expectation that there will be the increase in unemployment that we saw back then."

The CML now predicts house prices will fall by seven per cent over the course of 2008.

Furthermore, the CML predicts a rise in the number of loans in arrears for more than three months from 129,800 at the end of 2007 to 170,000 at the end of this year

The number of possessions taken by first-charge mortgage lenders is also now forecast to rise from 27,100 last year to 45,000 this year.

"It’s a combination of higher borrowing costs and disruption to income streams, we’ve got nearly 12 million mortgages so there are always some people who are suffering payment problems," said Mr Clarke.

"This usually because of changes to their circumstances, whether they have lost their jobs or whether it’s a relationship break up, those factors will be around, but also there are higher borrowing costs which will affect borrowers who have had payment difficulties in the past."

Chris O'Toole